What video card are you using? What driver version is installed for it?
Can you give an example of something you are trying to play but won't (a link from AH films forum perhaps?)? I have a W2K box still as my secondary computer at home, I could make sure it runs for me.
Finally, what service pack are you running?
If I had to guess, my first guess would be a bad video card driver, second guess would be that your Direct X accelleration slider is set down a notch or three, third guess is there's something really wrong with your video card. But there's not really enough to go on yet to do more than guess, unfortunately.
Edit: From your DXDIAG file I see that you're running SP4 and that you've got a GeForce 7600 GS. That driver version for your video card, 6.14.0010.9371, doesn't mean a whole lot to me, but its a relatively recent date (5/18/2007) at least. The only question based on your DXDIAG file I have is, why does it appear that you have both a Soundblaster Audio PCI and a Sound Blaster Audigy installed? If you really have both installed, can you remove one (the AudioPCI preferably) and see if that helps?